Weyerhaeuser

(WY) - Get Report

and

Domtar

(DTC)

set plans to merge their fine paper businesses in a $3.3 billion deal.

Shareholders of Federal Way, Wash.-based Weyerhaeuser will end up with 55% of the company. Weyerhaeuser will also get a $1.35 billion cash payment. Holders of Toronto-based Domtar will get 45% of the combined company.

"This transaction will create the North American market leader in fine paper and we anticipate that the combination will generate approximately $200 million in annual synergies within the next two years," said Weyerhaeuser CEO Steven R. Rogel. "I'm pleased that Weyerhaeuser shareholders will have the opportunity to participate in value created by this transaction. It's also good news for our employees in these businesses because the combination of our assets with those of Domtar creates a stronger leader in the paper market. Our employees have created one of the most efficient, low-cost systems in the industry. I know they will play a big role in the future success of the 'new Domtar.'"

Under the terms of the agreement, Weyerhaeuser will distribute ownership of the fine paper business and related assets to Weyerhaeuser shareholders in either a spin-off or split-off transaction. Weyerhaeuser will determine which approach it will take prior to closing the transaction. A spin-off would involve a pro rata distribution of shares to Weyerhaeuser shareholders. A split-off would provide Weyerhaeuser shareholders the option to elect to exchange Weyerhaeuser shares for stock in the "new Domtar."

Weyerhaeuser said the deal will allow it to resume its share buyback. Raymond Royer, Domtar president and CEO, will lead an organization of 14,000 employees with a management team composed of executives from Weyerhaeuser paper operations and Domtar.

Harold MacKay, counsel and formerly chairman and senior partner to the Regina, Saskatchewan law firm of MacPherson Leslie & Tyerman LLP and an international advisor to Weyerhaeuser's board of directors, will chair a 13-member board -- seven nominated by Weyerhaeuser, six by Domtar. MacKay will resign his Weyerhaeuser advisory role before becoming chairman.